For many small business owners, the mere mention of finance often conjures up images of long sheets of numbers, hoping to make payroll and begging creditors for more favorable terms — in other words, “finance” often equals survival.

But smaller building service contractors — those with $1 million or less in annual revenue — needn’t be scared of finance. There are plenty of resources to assist you in managing this side of your business.

This final “Back to Basics” chapter will focus on concepts that all BSCs, especially smaller ones, can work with on a daily basis, including capturing revenue; proactive accounts receivable; controlling expenses; and maintaining positive cash flow.

Revenue capture
You will need little effort on your bottom line if there is little coming in on your top line. This is why no company can underestimate the need for new business development and marketing. Have you met a company leader yet that claims to have zero account turnover? Have you heard of any example of a company thriving that was not developing new business? The May installment of “Back to Basics” offers some advice on setting up a sales and marketing plan.

But capturing revenue should go beyond an aggressive plan for new business development. First, what plans do you have in place to sell vertically within your customers? Many companies offer cleaning services and completely overlook other revenue generators such as providing paper and consumables, window cleaning, drain maintenance, carpet cleaning and light maintenance. For the small business owner, leaving revenues like these on the table is akin to inviting your competition to do business with your client. Not that every outsourced service must be tackled, but you should consider the potential to offer additional support.

A healthy top line also is about selecting and maintaining the “right” customers. Small contractors, especially those with insufficient cash flow, often will take on the wrong customers. There are customers who have poor accounts payable histories, who are in volatile market niches and who “commoditize” your services. Their business volume, while initially attractive, will soon be no more than unnecessary weight on your cash flow and will take a disproportionate amount of attention and management time. While there is a learning curve, you must become astute in turning down this type of customer.

Proactive accounts receivable
Of course, once you have the customers, you’re going to have to collect. If you want to collect accurately and promptly, you first must bill accurately and promptly. Some of you may use a bookkeeper and some may utilize software programs such as QuickBooks. Both programs should be adequate with the addition of a few action items:

• Mail your customer invoices two or three days prior to the first day of the service month so they arrive around the first day. After all, it's on this day when you begin to use your capital and cash flow to deliver services. But even checks from the most efficient customers often will take one to three weeks before they arrive.

If your customers balk and consider this to be pre-billing, refer to other contracting areas that require deposits before they will purchase materials to complete a job. Janitorial companies need to promote these professional methods and, in doing so, remind customers everywhere that we are as important as any other service providers.

• Mail your customer invoices to the correct accounts payable address. This seems obvious, but more often than not your contact person at an account is not the AP person. Many small customers outsource their AP. Make sure you ask for the correct information up front.

• Mail your customer invoices at the same time every month. The simple process of your customer receiving their invoice within the same one-to-three day period each month will encourage timely payment.

Also, always show the service dates covered on the invoice.

•After the first few services on a new account don't just call your contact person; check in with the AP person. Verify that they have received your first invoice; make sure to answer any questions they have; and ask them to share their payables cycle with you. The AP person even may mention that if their company receives billing by a certain day of the week or month it would speed up the process.

But beware of less productive advice from the AP person, such as comments that they cannot process until a certain date, so you shouldn’t send the invoice until then anyway. Your accounts receivable aging always should begin on your invoice date. Keep to this consistency of billing.

• Answer billing questions quickly. If you need to adjust an invoice, do it promptly. If it was your mistake, your invoice date should change to the date you processed the change. If it was the customer’s error, keep the original invoice date.

•Always be proactive in collecting money. Visit your accounts in person. Shake the hands of those who are affected by your service and those who may approve of or process the accounts payable. Consider every customer service call as a collection call.When you ask your customers about their service perceptions, remember that any negative answers could always turn into delayed payments. Always assure that your staff is performing services properly, and with that you can confidently segue into any necessary payment questions.

•Be consistent, concise, tactful and professional with collection efforts.

Controlling expenses
Small businesses grow or bust based on cash flow. So re-assess your expenses often. Your cash flow should incorporate labor, equipment, chemical, supplies, consumables, transportation, insurance, workers comp, licenses and permits, security and drug screening and any other costs that take your cash away.

Remain involved on a daily basis. No business, no matter the size, can maximize margins if they don’t keep an eye on all cash that passes through their hands.

Prioritize your expenses without ignoring any. This will keep all expenses in front of you on a regular basis, but will allow you to focus on the highest priorities first — labor being the obvious No. 1 priority.

Finally, be quick to react where there is waste. Don't let a day go by when costs can be cut without sacrificing service quality and performance to contract specifications.

Maintaining positive cash flow
The initial start-up and growth phases of any small business can easily be labeled successes or failures based largely on the ability to maintain a consistent, positive cash flow.

Unfortunately, many contractors miss the most important step in the cash flow process — starting out with some! Due to the “apparent” ease of getting into the building services industry and the marketing of numerous low-cash-down options, many unfortunate BSCs immediately fall into critical financial situations and never recover.

As bleak as this may sound, it only exemplifies the need to prepare an initial business plan complete with cash flow projections for the first two years of your business. If you are already involved in an established business, then focus on the next twelve-month cash flow projection. You will need a qualified accountant to support you in analyzing the financial impact of your business goals and objectives. Focus on the relationship between cash flow and account development, and growth for your two-year plan.

Aggressively and accurately capturing revenue, initiating proactive accounts receivable actions and maintaining effective expense controls each will have a dramatic effect on cash flow. With a positive monthly cash flow you will experience a more relaxed day-to-day business life, meet all of your financial responsibilities and be able to focus your efforts on growing your business.

Joseph K. Fairley is an industry veteran and executive vice president of business development for Building One Service Solutions, an Encompass Services Corp. company.




POSTED ON: 7/1/2001